A blog for Small Business Consultants and the vendors who serve them. It contains Opinions on business success, News in the SMB consulting space, and Information on what I'm up to.All material Copyright (c) 2006-2020 by Karl W. Palachuk unless otherwise noted.

Wednesday, October 28, 2015

The Really Hard, Hard, Hard Truth About Running a Service Business

I go to a lot of conferences inside and outside the "managed services" community. I hear lots of great advice, some mediocre advice, and a small amount of bad advice. In the big picture, business advice is very much like personal therapy: You know what you need to do. Now you need to DO IT!

There are always new strategies, new techniques, and new ways of looking at the world. And sometimes we need to hear the same advice 1,000 times before we're ready to act. But we're rarely surprised at the advice we get.

- Raise your rates
- Sign contracts
- Have a great PSA
- Have a great RMM
- Sell quality products
- Deliver what you promise

So why do 80% of all businesses fail in the first five years? It's very simple: Business owners are not willing to work hard at the things that matter the most. Period.

Many of us work very hard all the time, thinking that will get the job done. It won't. Hard work only matters if you work hard at the right right things. And those things boil down to a very few:

1. Money

Someone in your company has to work really hard on the money. That means making sure that everything you do is profitable. It means knowing in some detail how much money you have in the bank, how much payroll costs you, how much you have in receivables, and what your cash flow looks like.

I don't care if you hate money and never want to think about it. Your business WILL DIE if someone doesn't make money the highest priority. There's an old saying that you're losing money on every sale and you'll make it up in volume. Well, that's the road to "broke."

If you are not going to totally master the flow of money into and out of your business, you need to hire someone who will. And you better trust that person, because if you refuse to pay attention to money, you'll never know if they're doing it right.

2. Service Board

First, let me piss off a few people. If you do not have a real Service Board (ticketing system) in the 21st century, you are an amateur. Service boards and PSAs (professional services automation) tools are everywhere and very reasonably priced. You don't have to manage your contracts in it, do your billing through it, or use it to manage inventory. Those are nice but not required. You DO HAVE TO manage service tickets through a good, modern service board.

Why? Quite simply, service delivery is the single most important thing you do in your business. It is your business. I want to say that the Money piece above is the single most important piece, but without service delivery, there is no money. At the end of the day, you make money by trading labor (services) for money (whether hourly or flat fee/recurring). If you don't have a service board, the best you can do is get by.

With a service board, you can track 100% of your time. Everyone throws out numbers about how much they bill and and how billable their technicians are. But if you don't track that in your service board, you're just guessing. And the "optimism bias" (Google that term) guarantees that you will have an incorrect assessment of how you're doing.

Someone in your company needs to absolutely master the management of the service board. How many hours of labor flow into your company as service requests? How many hours are worked as effective billable labor? How do these numbers change over time? How many High Priority tickets are in your system? How many Low Priority tickets? How do you manage these to make sure everything gets the right amount of attention?

Again, if you don't have the discipline and detail-oriented nature to manage all that, then you need to find someone who does. Make that person your service manager and let that person run the company - or at least the service department.

I know you can do some of this with Excel spreadsheets and a good memory. But that's truly amateur stuff. If your "service board" consists of scribbled notes and remembering everything you're supposed to do, you aren't even an amateur. You're a hobbyist.

The difference between having and not having a service board is the same as the difference between a brand new smart phone and a 1970's telephone tethered to the wall. Honestly.

Without a good service board, you cannot run the reports to determine whether an employee is even paying for himself. You don't know whether any specific client or job is profitable. You think you know, but you don't know. You can't analyze your business in any meaningful way!

3. Sales

I hear the same crap all the time: We're 100% word of mouth. Okay. Great. There is a natural limit to the size of any business that grows 100% by word of mouth - Because "word of mouth" really means someone else's mouth. Your mouth is the only mouth that matters. YOU have to be out there making appointments, making proposals, and closing business.

If you're not selling your business, you have to know that no one else is either.

You might be very happy with slow growth. I am. In my last managed service business, I grew the business to $950,000 through slow growth. It was manageable and profitable. I never signed up 10 new clients in a month. But that was my choice.

But even with slow growth, I had to SELL. I had to make appointments. I had to do network assessments. I had to make proposals. I had to follow through.

If you just wait for the phone to ring, it probably won't. You have to make the phone ring. That doesn't mean outbound sales calls, necessarily. You can run Robin Robins campaigns and get people to call you. But you have do something. And you have to work at it.

Like everything else, if you're not willing to make sales, you need someone in your company who will.

Hard Work Only Matters if You Work Hard at The Right Things!

We can fill our days with low-priority tasks that will keep us busy for the rest of our lives. We can focus like crazy on the tech support we love. We can work hard at all the details of fine customer service.

But the hard truth is that you have to put maximum focus on just a few things. Get the money right. Get the service board right. Get the sales done. If you take care of these things, everything else will follow. If you fail (or ignore) these things, your business will flounder.

You might get away with being mediocre at these things for a long time. But you will never have a massively successful service business until you, or someone you trust, pays attention to money, service, and sales.

Here's a quick test.

1. Are you . . . Loaning money to your business each year?
2. Are you . . . Giving yourself a regular paycheck every month?
3. Are you . . . Somewhere in the middle?

If you answered #1 you are losing money every year. Get out. Go do something profitable. Or focus on the the important things even if you hate them. If you answered #3, you are probably losing money some months. At a minimum, you are not making as much as you should be. Again, focus on the hard work. Put money management, service delivery, and sales above everything else.

Busy and productive are not the same thing.

The hard, hard, hard truth is that most people know what they should be doing to be successful, but they don't have the discipline to do it. Just because you don't like something doesn't mean you can ignore it.

The single most important IT MSP blog post I've read this year... I agree totally.... I work with many IT providers on a subcontracting basis and it's suprising how many don't have a service desk or even PSA....

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FTC Disclosure Statement

I make every attempt to honestly state what I believe and enjoy the freedom of posting whatever I feel like on this blog. This is a big complicated world and I have many interconnected personal and professional relationships.

I may in some way receive money or other benefits from any of the products, services, or companies mentioned in this blog as a direct or indirect result of my actions on and off this blog. Any experience mentioned here is just my experience and I have no knowledge about whether it represents a typical experience with any products, services, or companies mentioned.

Whenever it is possible to have both an honest and a misleading interpretation of my statements, please assume honesty. Thanks. - karlp